Renowned economist Mariana Mazzucato has garnered widespread acclaim for her work on the concept of the “entrepreneurial state,” where she argues that the state plays a critical role in driving innovation. Her essays and books emphasize the state’s capacity to spearhead groundbreaking advancements. However, while Mazzucato is skilled at extolling the virtues of government-led initiatives, her argument overlooks a crucial flaw—the state’s susceptibility to political incentives.
Unlike market entrepreneurs, who are driven by the pursuit of profit, the state operates based on political motivations. As a result, government officials may continue supporting failing projects for the sake of national prestige rather than economic viability and serving the consumer.
In the marketplace, underperforming products and services are either improved or abandoned in favor of more successful alternatives. In contrast, Mazzucato’s vision of the entrepreneurial state is one that prioritizes politically appealing ventures, regardless of profitability. Green energy programs, for example, remain prominent in political circles, despite repeated failures. Mazzucato’s model, in essence, advocates for an interventionist state that prioritizes hype over sustainability and profitability.
While Mazzucato’s work has sparked significant debate, many of her critics have failed to recognize the full extent to which political incentives hamper the state’s entrepreneurial potential. One notable exception is the economist Randall Holcombe, who argues that achieving technological milestones should not be conflated with entrepreneurial success. Instead, such accomplishments reflect feats of engineering rather than value-generating entrepreneurship. Governments often finance large-scale projects to foster national pride, but Holcombe contends that this focus on symbolism rather than economic viability undermines true entrepreneurship. A state more concerned with building national prestige than creating value inevitably wastes resources by ignoring market forces.
The case of Singapore is frequently cited as an example of an entrepreneurial state, but researchers suggest that government-led entrepreneurship there has stifled homegrown innovation. By funneling resources into government-endorsed ventures, the state has inadvertently suppressed independent entrepreneurship and redirected capital away from more traditionally profitable industries. Moreover, despite Singapore’s strong government policies, the economy relies heavily on multinational corporations for innovation, challenging the idea that an entrepreneurial state can cultivate a truly entrepreneurial society.
Singapore’s experience poses a direct challenge to Mazzucato’s thesis, but other examples also cast doubt on her vision. In the United States, research has shown that public R&D programs for small businesses have crowded out private financing without producing significant positive outcomes. Firms that benefit from R&D programs are less productive, possibly because less efficient companies are more reliant on government aid.
The shortcomings of the entrepreneurial state become even more evident when examining the performance of green energy initiatives in greater detail. In China, state-led investments in wind power have resulted in sluggish technological progress and numerous failures. Analysts argue that government involvement has led to a disregard for economic principles in favor of political objectives. Similarly, in Europe, state-backed green energy companies have become dependent on subsidies without demonstrating meaningful productivity growth.
These examples align with Martin Livermore’s recent findings that government involvement in business tends to result in more failures than successes. This outcome is hardly surprising, as the state operates under different incentives than entrepreneurs. Politicians can declare a program a success even if it fails in the marketplace, as long as it serves their political interests. In contrast, market entrepreneurs must either meet consumer demands or risk going out of business. The realities of political decision-making reveal the entrepreneurial state as more of a theoretical construct than a practical one.
Originally Posted at https://mises.org/
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